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Investors beware 'analysis paralysis'

24 Nov 2014

Emotion and logic each have a role to play in decision-making, whether personal or business. But, if you want to successfully invest in property, it’s vital to have a practical and logical system in place that allows you to make good decisions based on the facts.

Many property investment deals have fallen through because a number of buyers don’t have a system in place that allows them to make good decisions.

Beware of ‘analysis paralysis’, warns Just Property Group's, Paul Stevens, who says many deals have fallen through because some investors are unable to make a solid decision.

He says overly analytical people will scrutinise a deal beyond what is necessary, which is when analysis paralysis happens. He says buying a property for investment is never perfect, but analytical people can have a problem with this. “They can often suffer from the fact that real estate involves both give and take. Often, they never get into the property game as they strangle themselves with their own reasoning before they even get started."

Stevens shares some helpful tips on how to overcome 'analysis paralysis'.

What is analysis paralysis?

The core symptom of analysis paralysis is the basing of your decisions purely on emotion and the small things that can be changed, such as fittings, or burying yourself in facts and figures.

You might never find the perfect investment, but by bringing yourself back to the reason for seeking an investment, you will find a near perfect one.

How to deal with it

If you find yourself in this state, Stevens says you need to set out clear goals and objectives, and ask why you want to make this investment: is it meant to be an owner occupied unit or is it purely for rental purposes?

The answer plays an important role in the decision-making process and will have an effect on your final decision. If you plan to live on the property, your emotions will play a pivotal role when buying. However, if this is an investment property, you need to have a completely different mindset. Your decision should be based on facts, figures and your return on investment, he says.

Before committing yourself to buying an investment property, ask yourself the following questions:

1. Is it viable?

2. Is it the right price?

3. What are the average rentals in the area and expected capital growth?

4. Are the returns realistic?

5. Are the returns what you expect?

6. Do the returns make your investment worthwhile?

7. Is there sufficient infrastructure in the area you are buying in?

8. Are there any future plans/extensions for the area?

9. Is there a high rental demand in the area?

10. What are the expected management and maintenance costs?

11. What are the current market trends?

12. Does it add to your bank balance or take away?

And finally, don’t over analyse things like tiles, counters and other fixtures. Although these do make a difference, they can be changed over time, and should not be something to stall your decision over.

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